What is a Coupon?

A coupon is a voucher that entitles the holder to a discount on a particular purchase. The issuance of a coupon allows the seller to advertise the discounted price of a product or service, net of the coupon, while not necessarily paying the amount of the coupon; a buyer must take action to present the coupon in order to receive a discount. Only the more price-sensitive shoppers collect and present coupons; all other shoppers typically pay full price. Thus, the net result of a coupon issuance is a relatively small discount from gross sales for the seller.

Advantages of Coupons

There are numerous advantages associated with the use of coupons, which include the following:

• Attracts new customers . Coupons encourage first-time buyers to try your product or service.

• Increases sales . Temporary discounts can create a sense of urgency, leading to increased sales. Also, customers are more likely to buy additional items when they feel they're saving money.

• Encourages repeat business . Repeat customers often spend more and are cheaper to retain than acquiring new ones.

• Promotes specific products . Coupons can draw attention to new, underperforming, or overstocked products. They can also be used to test-market new offerings by incentivizing customers to try them.

• Increases brand awareness . Distributing coupons through multiple channels (online, print, email) can expand your brand's visibility. Also, when shared, coupons serve as a form of word-of-mouth advertising.

• Encourages bulk purchases . Discounts tied to buying in larger quantities drive higher sales volumes.

• Stimulates off-season sales . Coupons can be used to drive traffic during slow periods or off-seasons.

• Gain a competitive edge . Coupons can differentiate your business in a crowded market by appealing to value-conscious customers.

• Track market effectiveness . Coupons with unique codes or links provide measurable data on redemption rates and customer behavior.

By strategically using coupons, businesses can drive sales, attract new customers, and build long-term loyalty while gaining valuable marketing insights.

Disadvantages of Coupons

Coupons are expensive to print and distribute. Also, if a customer uses a coupon, the issuer loses the margin represented by the amount of the coupon; this represents a clear loss to the seller if the buyer was going to make a purchase even if the coupon had not been offered.

Accounting for Coupons

There is no accounting for a coupon, since the discount stated on the coupon is deducted from the price of the related product or service at the point of sale. The result is a net sale, which is then recorded by the selling party.

Bond Coupon

A coupon is also the annual interest rate paid on a bond, stated as a percentage of the face value of the bond. It may also be referred to as the coupon rate.

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